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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

A bank suffers a loss when a payment is sent to the wrong beneficiary because an operations clerk mistyped an account number. The error was unintentional and the process had no independent verification step. Which statement best describes the identification and classification of this event?

The event belongs in Execution, Delivery and Process Management, with the lack of independent verification noted as the control weakness. The error was unintentional, so fraud categories do not apply, and damage to physical assets concerns tangible property rather than a mistyped payment instruction.

  1. AExternal Fraud, because a third party received the funds
  2. BInternal Fraud, because an employee initiated the payment
  3. CExecution, Delivery and Process Management, with the missing verification control noted as the control weaknessCorrect
  4. DDamage to Physical Assets, because the loss reduced the bank's assets

Explanation

An unintentional data entry error in transaction processing falls under Execution, Delivery and Process Management. Recording the absent four-eyes check as the control gap supports identification of the root cause. Fraud categories require intent, which is absent, and physical asset damage refers to tangible assets.

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